Significance of Force Majeure in Corona Times
The definition of Force Majeure – or Vis Major (Latin) – means ‘superior
power,’ also known as fortuit (French) or casus fortuitus (Latin) ‘occurrence,
unavoidable accident,’ is a standard clause in contracts that essentially
relieves all parties of liability or obligation in the event of an unusual
occurrence or circumstance beyond it. Indeed, most force majeure clauses do not
completely excuse a party’s non-performance but suspend it for force majeure
Force Majeure Law (a French term meaning ‘superior force’) is expressed in Sections 32 and 56 of the Indian Contract Act, 1872. It’s a statutory clause negotiated between parties. A force majeure event protects a party from liability for failing to fulfill a contractual obligation. Usually, force majeure occurrences include an act of God or natural disasters, conflict or conflict conditions, labor strife or strikes, epidemics, pandemics, etc. As the World Health Organization (WHO) has already declared COVID-19 a pandemic, force majeure can be invoked at this period.
What’s in force majeure?
Force Majeure is usually meant to involve events outside a party’s fair control and does thus not cover:
- The normal and inevitable effects of external forces.
- Any consequence of a party’s failure or misconduct that has a significant adverse impact on that party’s ability to fulfill its obligations.
- To illuminate this distinction, take the example of an abruptly-called outdoor public case.
- If the cause of cancelation is ordinary regular rain, most possibly not force majeure.
- If the cause is a flash flood that destroys the location or makes it unsafe to visit, then this almost definitely forces Majeure, rather than if the site was on a recognized flood plain or if the site was likely to be prone to torrential rain.
- Certain factors may be arguable borderline cases (for example, if unusually heavy rain occurred, making the event considerably more difficult, though not impossible, to keep or attend safely); these must be determined in the circumstances.
- Any conditions explicitly discussed (included) in the contract — for example, where the outdoor event contract expressly permits or allows cancelation in case of rain.
Under international law, it refers to an external force or unexpected occurrence beyond a state’s control, rendering it physically challenging to fulfill a global duty, which is similar to a state of emergency definition.
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In any case, force majeure is governed by contract law rather than
general principles of force majeure. Contract law is sometimes defined in the
agreement by choice of law clause and, if not, by a statute or general law
principle that refers to the contract.
Importance of Force Majeure clause in
A force majeure clause is intended to protect against failure to fulfill contractual obligations caused by events beyond a party’s control, such as natural disasters. Force majeure clauses are primarily used to identify circumstances where contract performance is forgiven.
Significance of the clause in COVID-19
At a time when the world is at a standstill due to pandemic, performance under contracts is likely to get delayed, interrupted, or canceled. It would be possible for suppliers in contracts to try to postpone and escape delivery (or non-performance liability) of their contractual obligations and; or cancel contracts, either because Covid-19 has hindered them from performing their contractual obligations, or because they intend to use it as an excuse to get rid of an unflavoured offer. Parties can also invoke COVID-19 as a basis for price renegotiation or other primary contractual clauses (e.g., amount of material exported or imported into affected areas due to supply and demand shifts).
Therefore, in this collection of facts and circumstances, it becomes
necessary to determine the answer to the question of whether Covid-19 will be
considered a case of ‘force majeure?’
In persistent cases, treating the COVID-19 pandemic as Force Majeure
depends on adding the Force Majeure clause into the contract to be considered.
Indian law cannot mean a force majeure clause. It must be expressly provided
under the contract, and protection will depend on the clause’s language. In
case of disagreement over the meaning of the provision, the courts are likely
to follow standard contract interpretation.
If the force majeure event clause explicitly includes pandemic events,
the Covid-19 outbreak would activate a force majeure clause in the contract.
Whereas, whether a party may be excused from a contract if Covid-19 is
considered a pandemic is a fact-based decision that will depend on the essence
of the party’s responsibilities and the particular contract terms.
All hope, however, is not lost to the party if the contract does not include force majeure clauses because the party may rely on the common law doctrine of contract termination. The doctrine would apply when an unexpected occurrence either renders a contract challenging to execute or renders the output result drastically different from what the parties envisaged when the contract was established.
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For the above purposes, it can be explicitly mentioned that the party
planning to invoke the force majeure clause in the contract is also at risk. If
a party declares force majeure but is not contractually entitled to do so, it
may be liable to a lawsuit for repudiator breach of contract. As a result, the
other party may be able to seek damages.
It is important to note that anger doctrine, while similar to force majeure doctrine, is more stringent. Courts usually won’t authorize a party to use the anger theory as a tactic to avoid a bad deal. Also, the doctrine of indignation won’t exempt a party from fulfilling a contractual obligation merely because the incident complained about made the task more complicated or costly. Economic hardship is no reason to invoke frustration.
Because it depends on what has been specified and inserted into the
force majeure clause of the contract, it is essential at this point in the
pandemic situation to examine key contracts and clauses therein.
Moreover, it will be better to invoke provisions such as acceleration, price reduction, liquidated damages, and more to prevent suffocating the sum involved in commercial contracts to get the sum in circulation. Companies and customers must be aware of their rights under the promises they have entered into common law and legislation so that they are prepared when faced with an inability to meet their contractual obligations under COVID-19. In these cases, it is often best to seek a lawyer’s advice.
Nischay is a lawyer by profession, with substantial background in Contract Drafting & Vetting. She earned her B.Com LLB (Honours) from GNLU in 2015. Her day-to-day at LegalWiz.in remains to protect client interests by drafting, reviewing & advising on various contracts & legal documents.